Why do regulators dislike newsletter marketing? (DM Notebook).

"Some people never give up" was my initial thought reading the story of the SEC complaint against Agora Inc. (NL/NL 4/30/03). The complaint alleges that Agora "disseminated unsolicited e-mails to subscribers of more than 15 internet newsletters published by Agora"--offering to sell something to their own subscribers, believe it or not.

Various stripes of regulators, as this article will show, appear to have an inherent dislike of "marketing."

On the investment newsletter front, it has been 17 years now since the unanimous decision of the US. Supreme Court in the case of Lowe Publishing vs. SEC ended more than 40 years of government regulation of publishers of financial advisory newsletters.

Until then, those publishers were required to register with the SEC and meet all regulations and standards established for investment advisors who actually hold and invest clients' funds.

(With First Amendment concerns clearly in mind, the SEC's enabling legislation in this area contained an excemption for publishers which, for reasons clear only to themselves, the SEC decided did not include publishers of newsletters.)

During that period of registration requirement, the SEC had several interesting ideas. One, which they presented to Congress, was that some type of education and experience should be required to be an investment advisor (or newsletter editor).

This faltered because they were unable to demonstrate any particular combination of education and experience which appeared to "work," to make someone effective at investment management.

The Phillips case

Closer to home, at one point the SEC instituted an action against Phillip Publishing, which was registered as the publisher of The Retirement Letter. What stuck in their craw was the "100 percent money-back guarantee" Phillips offered. Where, the SEC wondered, did Phillips maintain the reserve amount sufficient to meet the need if 100 percent of the subscribers were to cancel and demand their money back on the same day?

The regulators seemed unimpressed by years of Phillips' statistics showing that refund requests never topped one percent.

I won't say there hasn't been the occasional con artist in financial newsletter publishing. Once a publisher was offering a newsletter devoted solely to reports on a proprietary process that would turn Costa Rican beach sand into gold. I remember thinking, "No scheme of regulation can protect someone who can be sold that."

The Agora case

Back to the present. The SEC still seems to be seeking a way they can regulate some aspects of financial newsletter publishing. Rephrasing the complaint in the first paragraph, what Agora appears to have done is offer a special report to subscribers of their investment publications via e-mail (and make a lot of money on the offer, which evidently annoyed the bureaucrats).

The New York Post took the same tack. "What Agora was really after was to peddle ultra-expensive company reports." Duh. Historically, financial reporters at newspapers don't much like independent newsletter journalists.

The hurdle for the SEC will be that since, by company policy, Agora owns no stock in any company they write about, they cannot be accused of "pump and dump" or any other of the classic stock market offenses.

Other federal agency "initiatives"

The SEC is not alone in its apparent irritation with newsletter marketing practices. In my years as a newsletter marketer, I've seen:

* USPS staff convinced that "something" was wrong with forced free trials, resulting in interminable negotiations over the exact wording to be used in the disclaimer appearing on the conversion notices, "This is not a bill. You are under no obligation to pay."

* Federal Trade Commission staff certain that "something" was wrong with the famous Post-It note promotion. "It's designed to appear as a personal message when it is really an ad," they groused.

* Federal Election Commission staff believing that a promotion for a conservative newsletter--" Fight the liberal bias on campus by giving a gift subscription to the library at your alma mater"--was somehow an illegal campaign contribution.

I would never encourage newsletter marketers to do anything illegal, but I would encourage them to "be prepared" for a visit someday from a bureaucrat of some stripe who is convinced that something you regard as a perfectly ordinary marketing ploy is somehow "fraudulent."